Thursday, September 10, 2015


At the NATP Tax Forum and Expo in Philadelphia last week I attended educational sessions on divorce, Schedule C, trusts, “wealthy” taxpayers, and current developments (of which there were really none, other than the inflation adjustments, that affect 2015 individual returns).  Here are some items of interest – not necessarily quoted from the sessions but “inspired” by items discussed in the sessions:

ü  In order to be claimed as a dependent as a “qualifying relative” your college student son or daughter over age 23, for whom you provide more than half of his or her support, must have gross taxable income of less than the current personal exemption amount.  For 2015 that is $4,000.  If that person’s only income is a W-2 reporting $3,942 in federal taxable wages it is ok – he or she is a dependent.  But if the total wages for the year are $4,009 he or she cannot be claimed as a dependent. In such a case $9.00 in income could cost you to pay at least $1,000 more in federal income tax.  So check on his or her wages at the beginning of December and tell him/her to stop working if he/she is already “close to the edge”.  You may even offer to reimburse him/her for lost wages if financially appropriate.

ü  The status of “custodial parent” is determined for tax purposes not by anything written in the divorce decree – but by the number of nights the child or children sleep at a parent’s home.  As with the per diem deduction for business travel the determining factor is where the child, or children, lay their heads each night.  A child may spend all day – from 8 AM to 8 PM - at the home of his or her father, but if he or she returns to the mother’s home at night to sleep that day is counted to the mother.  It is important that divorced parents keep a detailed “sleep log” for each child to be able to substantiate a claim of “custodial parent”.

ü  In order for a payment to be deductible as alimony it is important that the divorce decree or agreement states that the payment will cease upon the death of the recipient ex-spouse.  While it may be implied or obvious, it must be specifically stated in the document.

ü  If the father is paying for the qualified child care costs of a child or children, and running the costs through his employer-sponsored dependent care flexible spending account (such that his federal taxable wages reported on his W-2 are reduced by the $5,000 maximum), but the mother is the custodial parent, the father must add $5,000 to his taxable wages on Line 7 of his Form 1040 (or 1040A).  Even though the expenses are “qualified” and are paid by the father he is not entitled to the credit or pre-tax treatment.  When you think about it this makes sense (my thoughts, not those discussed in the session) – the credit or pre-tax treatment is allowed because the cost of child care is incurred so that the person caring for the child can work.  Even though the father is paying for the care, because the child does not live with him the purpose of the payment is not so he can work, but so the custodial mother can work.

ü  The “shared responsibility penalty” for not having sufficient health insurance coverage, which took affect with 2014 returns, is still with us – except that the penalty amount is increased – possibly doubled – for tax year 2015.  And beginning with tax year 2015 insurance companies and employers are required to issue Form 1095-B (insurance company) and Form 1095-C (employer coverage) to those covered by insurance as a way of verifying to the IRS, and the tax preparer, the months of “minimum essential” health insurance coverage.  A single taxpayer may receive multiple 1095-Bs and/or 1095-Cs for the year.  Form 1095-A will continue to be issued to those who purchased health insurance coverage via the Obamacare “Marketplace”.  Give all Form 1095s you receive – whether A, B, or C – to your tax preparer along with your 2015 tax “stuff”.

ü  While income from rental real estate is considered to be “passive income”, and subject to the 3.8% Net Investment Income surtax assessed on “wealthy” taxpayers, “self-rental” (renting real estate you own to your company) is not passive for Net Investment Income purposes and is not subject to the 3.8% surtax.

ü  A final reminder – the deadline for filing 2015 individual income tax returns, and automatic extension requests – is April 18, 2016.  The District of Columbia celebrates Emancipation Day on April 16 and when that date falls on a Saturday, Friday becomes the official date.  Therefore, since the term “federal holiday” includes any legal holiday observed in the District of Columbia, all taxpayers will now automatically get their due date extended to Monday April 18.  In Massachusetts and Maine Patriots Day is celebrated on the 3rd Monday in April, which is April 18 for 2016.  Therefore, taxpayers in these two states get to file and pay on Tuesday April 19. 


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